How Do Renewals in Commercial Leases Work?

How Do Renewals in Commercial Leases Work?Typically you negotiate your commercial lease renewal up front.  Most landlords (especially in Austin, Tx) will have language in the lease that says you must give written notice of your intent to renew your lease at least 6-12 months before your existing lease expires.  If you don’t then the landlord can lease the space to another tenant without needing your consent.  With the renewal option in place it gives you the control of the space.  When they present you the renewal offer you have the option to take it or not.  If you don’t take the offer you are essentially giving up your option right and now entering in lease renewal negotiations.

Keep in mind……….you do not have to accept the renewal option the landlord presents to you!  It is simply an option that gives you control of the space.  However you want to be proactive because if the landlord gives you a renewal proposal 30 days before your lease expires and you do not have any other options to consider you will end up paying more than you should.  I do have commercial lease renewal tips that will give you some good ideas on how to negotiate the best lease renewal.

Below is an EXAMPLE of what commercial lease renewal language might look like.

As long as Tenant is not in default of any of the terms or provisions of this Lease, Tenant is granted the option to renew the terms of this Lease for a one (1) period of three (3) to five (5) years, at Tenant’s election (the “Renewal Term”), to commence at the expiration of the initial term of this Lease. Tenant shall exercise its option to renew by delivering written notice, certified mail, return receipt requested, of its election to renew to Landlord at least one hundred-twenty (120) days but not more than two hundred-seventy (270) prior to the expiration of the original term of this Lease. Failure of Tenant to timely deliver said renewal notice shall cause this option to automatically terminate and be null and void.  During the Renewal Term all of the terms and provisions of this Lease shall remain in effect, except that:

(i)           The Basic Rental during the Renewal Term shall be the Fair Market Rate as determined by Landlord at the time the option is exercised by Tenant.  Fair Market Rent shall be determined by Landlord in relation to comparable (in quality, location and size) space located in the Project (“Fair Market Rent”). If Tenant disputes Landlord’s determination of Fair Market Rent, Tenant will deliver notice of such dispute together with Tenant’s proposed Fair Market Rent to Landlord within fifteen (15) days of Tenant’s receipt of Landlord’s determination.  If the Tenant disputes the Fair Market Rent submitted by Landlord the parties will attempt, in good faith, to agree upon the Fair Market Rent.  If the parties fail to agree within thirty (30) days, then Tenant’s option to extend the term (as may have been extended) shall be deemed null and void and of no further force or effect. Tenant’s failure to object to the Fair Market Rent submitted by Landlord within such fifteen (15) day period will conclusively be deemed Tenant’s approval thereof;

(ii)          Tenant shall have no option to renew this Lease beyond the Renewal Term;

(iii)         Tenant shall not have the right to assign its renewal rights to any sublessee;

(iv)         Landlord shall not be required to provide Tenant with any construction allowance, finish-out, rental concessions or other inducements during the Renewal Term; and

(v)          In addition to the Basic Rental as determined above, Tenant shall continue paying all other charges and amounts as provided in the Lease during the Renewal Term

While there are a few nuances, the commercial real estate lease renewal process is basically the same whether you are leasing office, retail, or warehouse space.

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